Student Debt Bubble - part 1

Budget cuts brought on by the recent recession have taken their toll on the American education system, pushing more students and lenders to take up the slack. Incremental cuts have caused education allocations to drop since 2008, with thirty-six states decreasing funds by more than 20%. As a nationwide average, states cut their education spending by 28% from 2008 to 2013, according to the Center on Budget and Policy Priorities.

Some states have suffered deeper cut more than others. Washington and Florida now provide the lowest amounts of support for their public universities. Spending per student was just about $6,000 for these two states in 2010, barely over half the amount allotted to students in states like Hawaii, Connecticut or Arkansas that year, according to the Department of Education.

When states cut education budgets, where exactly does this money end up? The National Association of State Budget Officers (NASBO) has identified great leaps in Medicaid spending, growing from 22.2% of state expenditures in 2010 to 23.9 in 2012. During the same time period, education spending dropped from 20.4% to 19.8%. NASBO projects that funding will become even more difficult to allocate toward education in upcoming years, due to long-term healthcare demands and pensions.

State funding for education may eventually climb out of the recession pit, as legislators anticipate upcoming economic growth. The Chronicle of Higher Education describes how California governor Jerry Brown is trying to raise expenditures from 4% to 6% in the upcoming year, but it will probably be quite some time before students feel the effects. Moody’s Investors Service still sees massive cuts to key areas like research on the horizon, so wary colleges probably won’t be loosening their budgets any time soon.